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Apple enjoyed Irish tax holiday from the start

Apple Operations International, a subsidiary of Apple Inc, is seen in Hollyhill, Cork, in the south of Ireland May 21, 2013.
REUTERS/Michael MacSweeney (STRINGER/IRELAND / Reuters)

By Reuters

Thu., May 23, 2013

DUBLIN—Apple has operated almost tax-free in Ireland since 1980, welcomed by a government keen to bring jobs to what was then one of Europe’s poorest country, former company executives and Irish officials have said.

Chief Executive Tim Cook faced criticism from a Senate subcommittee in Washington on Tuesday over the iPad and iPhone maker’s tax practices, which had been shrouded from full view behind secretive tax-exempt Irish-based corporate entities.

Apple, one of Ireland’s top multinational employers, denied avoiding billions of dollars in U.S. taxes and said its arrangements helped fund research jobs in the United States.

The committee revealed that Apple’s Irish companies, which are not tax resident in any jurisdiction, allowed the group to pay no tax on much of its overseas earnings in recent years.

A former company executive and Irish officials told Reuters the almost tax free status dates all the way back to Apple’s arrival in County Cork 32 years ago.

Apple must have seemed attractive to Ireland and to Cork. Amid a generally moribund Irish economy, Cork had been hard hit by the closure of its shipyards and a Ford car plant and in 1986 nearly one on four were out of work in the city.

In the early days, Apple’s staff sat down to meals together. Now the company employs 4,000 in Ireland and is the country’s biggest multinational employer.

“There were tax concessions for us to go there,” said Del Yocam, who was Vice President of manufacturing at Apple in the early 1980s. “It was a big concession,”

In fact, the deal was about as good as a company can get.

“We had a tax holiday for the first 10 years in Ireland. We paid no taxes to the Irish government,” one former finance executive, who asked not to be named, said.

Apple wasn’t an exception, although it was among the last to enjoy such favourable treatment. From 1956 to 1980, Ireland attracted foreign companies by offering a zero rate of tax, according to the Irish government’s website. Eligible companies arriving in 1980 were given holidays until 1990.

“Any multinational attracted into Ireland that was focusing on the export market paid zero per cent corporation tax,” said Barry O’Leary CEO of IDA Ireland, which is charged with attracting investment into Ireland.

Apple said it pays all the tax due in every country where it operates. It declined to comment on the tax treatment it received in the 1980s.

As part of Ireland’s accession the European Economic Community, precursor to the European Union, in 1973, it was forced to stop offering tax holidays to exporters.

From 1981, companies arriving in Ireland had to pay tax, albeit at a low 10 per cent rate, providing they qualified for manufacturing status.

Apple’s investment was a major coup for Ireland. At the time, the country was struggling with high and rising unemployment, double-digit inflation and a brain drain of the young and educated through emigration.

Ireland also offered low wage rates—a big attraction when it came to hiring hundreds of people for the relatively low skilled work of assembling electronic equipment.

Apple told the subcommittee it could not answer questions about why it chose Ireland as a base since it had lost the paperwork from the period.

The operation in Cork built the company’s Apple II computer and would later build disc drives, ‘Mac’ computers and others. These would be sold in Europe, the Middle East, Africa and Asia.

But having a tax holiday in Ireland would not, in itself, have allowed Apple to operate tax free in these markets.

Equipment assembly is not the kind of activity that economists or tax authorities usually credit with generating a large share of a technology company’s profits.

More value has been associated with generating the intellectual property behind the technology—which Apple did in the United States—and with the selling of goods, which was to be done on the ground in France, Britain and India.

But none of these countries offered the tax advantages Ireland did. The key to minimizing Apple’s tax bill was maximizing the amount of profit that could be ascribed to Apple’s Irish operations.

This task fell to Mike Rashkin, Apple’s first tax director, two executives from the period said. One called him “the father of it all”.

Rashkin arrived at Apple in 1980, from computer pioneer Digital Equipment Corp (DEC) in Massachusetts, where he had learnt about tax efficient corporate structuring in tech companies.

Apple had already decided to establish its base in Ireland when Rashkin moved to Silicon Valley, but he used his experience at DEC to set up a tax structure that took advantage of Apple’s base in the country, the executives said. Rashkin declined to comment.

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